Trump's tax plan could be painful for Capital Region residents

Trump plan ends deductions for property, state income tax

New Yorkers would pay a high price for some of the tax reforms proposed Wednesday by President Donald Trump.

Trump's plan, which does not outline its effect on the federal deficit and still faces an uphill battle on Capitol Hill, would replace the current seven income tax brackets with three, and drop the top tax rate from 39.6 percent to 35 percent.

The plan would also eliminate deductions for state and local income and property taxes that are worth billions of dollars to New Yorkers, who already pay among the nation's highest rate of local taxes. Whether those losses would be zeroed out under the new tax brackets was unclear in the plan, which ran one page and borrowed heavily from promises Trump made as a candidate.

Capital Region taxpayers are among the highest beneficiaries of such deductions, saving between $2,000 and $5,000 in 2012, depending on the county, according to analysis from the right-leaning Tax Foundation. Only counties in and around New York City had higher per-person deductions, according to the group, which also lists New York first on its most recent ranking of state tax burdens.

The Empire State accounts for about 14 percent of the national share of state and local deductions, trailing only California, which makes up another 19 percent, according to the nonpartisan Tax Policy Center, a partnership between the Urban Institute and Brookings Institution. About 24 percent of all U.S. taxpayers would be affected if the deductions were scuttled, the Tax Policy Center previously estimated.

A similar proposal was floated in 2013 as a way to decrease the federal deficit, and was immediately decried by top New York lawmakers.

In a 28-page report sent to Congress at the time, Gov. Andrew Cuomo called the idea an "unfair double taxation scheme that dissolves more than 150 years of our nation's history."

"Allowing taxpayers to deduct their state and local taxes from their federal taxable income is a fundamental statement of the long-standing historical right of state and local governments to raise revenues and taxpayers not to be double taxed," Cuomo wrote. "It would take $14.8 billion in additional federal tax liability from New York families, for an increase of more than 30 percent — over $4,500 — per taxpayer."

Estimates conducted by the state Department of Taxation and Finance showed more than 171,000 Capital Region taxpayers would have been affected by the 2013 proposal.

Trump's plan would also slash the corporate rate from 35 percent to 15 percent, a move welcomed by businesses that have long decried America's corporate tax rate for being among the highest in the developed world. But after applying a patchwork of tax credits and loopholes, many businesses actually pay around 20 percent in taxes, according to calculations by JPMorgan.

By making corporations more profitable, the Trump administration hopes to encourage more business spending on equipment which could, in turn, accelerate growth and hiring that's slogged since 2009. Treasury Secretary Steven Mnuchin has said the administration is eyeing a growth rate of 3 percent, a figure that hasn't been reached since 2005.

Perhaps the most contentious plank would enable taxpayers with business income to instead pay the new 15 percent corporate rate by reducing rates on so-called "pass-through" companies. Under such entities, a business's income is "passed through" to its owners, who pay individual tax rates ranging from 10 percent to 39 percent.

Many small businesses and partnerships, as well as some privately held large companies — including Trump's own real estate empire — are structured as such.

Small business organizations have long sought such a measure, which they say would treat them equally under corporate tax law.

"We're pleased to see the 15 percent business rate," a spokesperson for the National Federation of Independent Business told USA Today. "We think it's a great way to kick-start the small business economy."

But many of the windfalls would likely flow to high earners. Nearly 75 percent of pass-through income flows to the wealthiest 10 percent of taxpayers, according to the liberal Center on Budget and Policy Priorities.

"The very wealthy are doing pretty well in America," U.S. Sen. Charles Schumer, D-N.Y., said on the Senate floor Wednesday. "God bless them. Let them do well. They don't need another huge tax break."

The administration also proposes a "territorial system" that would roll back taxes on companies' foreign earnings. American corporations currently have trillions of untaxed dollars stashed overseas, and the administration has said the change could encourage companies to repatriate that cash back to the U.S., though it's also possible that companies would use the money to pay dividends to shareholders.

What effect the plan would have on revenue and the federal deficit is unclear, though the left-leaning Committee for a Responsible Federal Budget puts the loss of revenue at $5.5 trillion, and the right-leaning Tax Foundation estimates the corporate tax cuts alone would lower government revenue by $2 trillion over 10 years.

Such a move, the Tax Foundation said, would require a substantial uptick in the growth rate.

Other economists say that if the cuts balloon the deficit, the jump in government borrowing would swell interest rates and make it harder for businesses and households to borrow and spend.

Ethan Harris, chief global economist at Bank of America Merrill Lynch, told The Associated Press such a "crowding out" effect can cancel out any benefits to the economy.

If Trump's proposals became law, depending on the details, growth could accelerate more quickly, he added. But the Federal Reserve would likely counter that with more short-term rate hikes to forestall rapid inflation.